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Saturday, November 30, 2013

Tune Ins - It's time to fly (CIMB)

Tune Ins Holdings Bhd -
Current RM1.90
Target RM2.55
It's time to fly

We are encouraged by the good progress of Tune Ins's regional expansion plans for its travel insurance business, as revealed during today's conference call. These include tagging along with the expansion of AirAsia's network, M&As and for tie-ups with other airlines.

Our DDM-based target price (COE of 9.2%; long-term growth of 5%) is intact. We reaffirm our Outperform rating on Tune given the potential re-rating catalysts of (1) swift expansion of the travel insurance business, (2) EPS-accretive acquisitions in Indonesia, and (3) tie-ups with other airlines.

What Happened
Peter Miller, CEO of Tune Ins, hosted a conference call today on the company's 3Q13 financial results. During the call, he touched on the company's strategies, focusing on the continuous regional expansion of its travel insurance business and the transformation of its non-life unit in Malaysia.

What We Think
We are positive on the company's continuous push for regional expansion of its travel insurance (TI) business. It has a three-pronged strategy for this (1) tagging along with the expansion of AirAsia's network, (2) M&As and (3) tie-ups with other airlines. For the existing TI business, the growth will be faster outside Malaysia as AirAsia is already the biggest player among the low-cost carriers in the domestic market. Moreover, AirAsia is adding to its network new markets which Tune can tap into. Tune is now actively scouting for opportunities for tie-ups with other airlines. Contributions from its recent collaboration with Cebu Air will be small but a tie-up with a bigger airline in the future would be a big boost to its topline. We see a reasonable chance of this happening given Tune's superior business and technical expertise in this space compared to other players.

What You Should Do
We advise investors to accumulate the stock given the potential re-rating catalysts of (1) swift expansion of the travel insurance business, (2) potential tie-ups with more airlines, (3) benefits from the revamp of its domestic non-life business, and (4) an EPS-accretive acquisition in Indonesia.

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